Gold edged up on Monday after a sharp correction in the previous session, buoyed by a stronger euro and physical buying from China, while expectations of aggressive monetary easing in Japan also lent support.

The euro rose 0.4 percent in its third day of gains, after the European Central Bank kept interest rates unchanged and its chief struck a more optimistic tone on the region's economic recovery late last week.

The dollar dropped to its lowest level since the beginning of the year. A weaker greenback makes dollar-priced commodities more attractive for buyers holding other currencies.

But moves in the currency market have done little to change the sluggish mood in the gold market, with analysts expecting bullion to range between $1,660 and $1,680 an ounce until investors get a better clue to the health of the global economy and the direction of central banks' monetary policies.

Speculators cut their net long positions in gold to a four-month low in the week to Jan. 8, data from the U.S. Commodity Futures Trading Commission showed.

Buying from China helped support sentiment.

"We see a fair amount of buying from China after gold prices fell last Friday, and the yuan hit a record high (against the dollar), making local prices cheap," said Peter Tse, director at ScotiaMocatta.

"Having said that, gold is still rangebound and I wouldn't put too much on this morning's rise until liquidity returns when the European market returns."

Spot gold inched up 0.1 percent to $1,664.04 an ounce by 0321 GMT, after edging up 0.3 percent last week.

U.S. gold gained 0.2 percent to $1,664.20. Technical analysis suggested spot gold is expected to be neutral so long as it remains in the range of $1,653-$1,678 an ounce, said Reuters market analyst Wang Tao.

Japan's Prime Minister Shinzo Abe stepped up pressure on the Bank of Japan to further ease its monetary policy, asking the BoJ to set a medium-term inflation target.

The prospects of a weaker yen in the wake of aggressive monetary easing in Japan pushed benchmark gold on the Tokyo Commodity Exchange to a record high on Friday, and fuelled hopes for fresh interest in bullion from Japanese investors, who have been avid gold sellers during the metal's bull run in the past few years.